If BT Buys O2 or EE, OMG

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”Read More.

Not too long ago, if you wanted a telephone in the U.K., you had to deal with British Telecommunications. The company had a monopoly on everything from national infrastructure to every British home's hard-wired phone. After waiting around for days for a BT engineer, he would maladroitly tack the wire to the bottom of the wall, then connect it to the plastic handset with the rubbery spiral cord that refused to untangle.

For those of us familiar with how shockingly bad BT customer service could be, the news that it plans to buy one of the country's two biggest mobile-phone companies is dismaying. It's also likely to spur further consolidation in the telecoms industry as competitors scramble to bundle the full suite of mobile, television and Internet services to consumers.

BT claims to be the world's oldest telecoms company, tracing its roots to 1846 and the Electric Telegraph Co. Formerly a government department and then a nationalized company, BT was at the vanguard of the Thatcher revolution when it was privatized in November 1984. It got out of the mobile-phone business in 2001 when it spun off its BT Wireless division. Spain's Telefonica bought the business, which by then was called O2, at the start of 2006.

Now BT is considering buying either O2 or, more likely, EE, the wireless venture jointly owned by Deutsche Telekom and Orange, according to Bloomberg News. The price of either would be about $15 billion, according to Citigroup.

BT wants customers to think it has improved. To that end, the company's website says it has five corporate values:

The values of Trustworthy and Helpful are long-standing BT service values and are supported by forward-looking values of Inspiring, Straightforward and Heart.

Quite apart from the question of how on earth "Heart" can be a corporate value, the most recent survey from U.K. market regulator Ofcom suggests BT is failing to deliver either trust or helpfulness. As a fixed-line provider, BT had the lowest satisfaction rating of any company in the poll, published last week. Moreover, the survey showed BT has gone backward since last year:

Source: OFCOM

BT is similarly unpopular as a provider of broadband Internet, a category in which it also did worse than last year and underperformed its peers:

Source: OFCOM

In the mobile phone industry, meantime, EE ranked lowest among providers, according to Ofcom's figures, which don't give a historical comparison because EE, Orange and T-Mobile are now merged into a single provider. The O2 service, meantime, polled higher than its peers, though its satisfaction rating slipped in the past year:

Source: OFCOM

A more pressing concern than how bad the customer service experience of a merged BT/EE might be is what consolidation and bundling in the relatively small U.K. telecoms market might mean for prices, even if it negates the need to deal with multiple providers.

My colleague Leonid Bershidsky argued in May that combos offer the opportunity for seamless connectivity among services for our multiple devices:

With a single contract and a single set of credentials entered into a device such as a laptop, smartphone or tablet, you will eventually stop paying attention to how you are connected and what you're connected to.

I'm worried, though, that fewer British providers will lead inexorably to cost increases as each takes a bigger market share. And I don't want to be disadvantaged if I choose Virgin's faster broadband, Vodafone's mobile service and Sky's television service, rather than opting for a BT bundle.

One thing's for sure. If BT does buy EE, I'll be looking to get out of my existing mobile phone contract pronto -- the memories of being on death-hold waiting for someone in BT customer service to take my call are still too painful.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”Read more